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CRE Pros Rate Five US Cities as Top Prospects for Landing Amazon’s HQ2

While Competition Remains Wide Open, Amazon’s Selection Criteria Seens a Blueprint for Winning Market Strategies in the Future
September 18, 2017
Amazon’s search for a second national headquarters site is being likened to the Powerball lottery for economic development organizations. They’re all lining up to take a chance at the $5 billion investment jackpot that could result from landing the online retailer's mega-office requirement.

Several senior-level managers across CoStar's analytics team are working through Amazon’s official RFP requirements and list of preferences for its second headquarters complex to come up with a ranking of potential metros that fit best. Our analysis will also identify specific development projects capable of handling the HQ2 requirement within those markets and that have the economic drivers to make people want to build there.

We’ll publish a summary of that analysis in the coming days.

In tandem with that analysis, we asked hundreds of commercial real estate professionals across the country if they could bet on winner, on what market would they put their money. Five emerged as the clear frontrunners: Atlanta, Austin, Dallas/Fort Worth, Denver and Nashville.

While anecdotal, the consensus picks reveal the traits that many in the CRE industry think will drive Amazon’s ultimate location decision.

Amazon’s selection criteria, as described in the company’s request for proposal, sets out a compelling list of the attributes that cities must have if they aspire to be a serious part of the America’s growing digital economy, according to Brookings Institution. Austin, then Dallas were two markets most frequently picked by CRE professionals among the 50 U.S. metros that met Brookings' criteria.

Some respondents gave Austin anywhere from 3:1 to 7:1 odds to end up the winner. For starters Austin is already the corporate home of Whole Foods Market Inc., the national retail grocery chain that Amazon just acquired for $13.7 billion. Austin is also a tech city with a “cool factor” similar to Silicon Valley and Seattle’s tech hub. Austin is also close to multiple colleges and universities, has labor resources, and more affordable office and residential real estate compared to other large cities.

These experts also mentioned that Texas is considered a "business-friendly" state with no income taxes and has shown a willingness to unload a war chest of incentives to attract major employers such as the recent moves by Toyota and State Farm. That factor comes into play for Dallas/Fort Worth as well. Dallas was given 6:1 odds. And CRE professionals like it for an abundance of available and inexpensive land and large vacancies in the CBD.

While more people picked Austin, many were willing to give Dallas the edge because of its superior air transportation system having two major airports, including an international airport. In its RFP, Amazon listed a “preference” for the metro having international airport, but it was not listed as a “requirement.”

Amazon currently has more than 20,000 employees in Texas. In September 2016, Amazon announced a plan to build its largest wind project to-date with more than 100 turbines. The project will generate enough wind energy annually to power almost 90,000 U.S. homes. Amazon is also developing a ninth fulfilment center in the state.

The next two most-picked locations following the Texas pair were Atlanta and Nashville.

Atlanta is home to the busiest international airport in the U.S. It also has a large high-tech employment base having emerged as a mecca for huge data and logistics centers. It also has modern infrastructure, major universities, a diversified economy and a relatively low cost of living. Atlanta was given as high as 3:1 odds.

One downside some observers cited was that Georgia is currently home to only about 500 Amazon employees. However, this summer, the company announced plans for a new fulfillment center in the state.

Nashville with its best odds of 8:1 was favored for having a hip, strong cultural scene, large growth capability, affordable living and occupancy cost and a reputation as an up-and-coming metro area. Amazon has more than 7,000 employees in Tennessee and Chattanooga is home to a 1.2 million-square-foot Amazon fulfillment center.

Denver emerged as the fifth-most picked city, which observers liked for its western culture and abundance of tech and energy workers as well as having the fifth busiest airport in the US. Like Georgia though, Amazon currently has fewer than 1,000 Amazon employees in the state, but iy has plans to expand there with two new fulfillment centers under development.

The Real Winners

Amazon listed the following criteria for choosing the location for HQ2.
  • Metropolitan areas with more than 1 million people;
  • A stable and business-friendly environment;
  • Urban or suburban locations with the potential to attract and retain strong technical talent; and
  • Communities that think big and creatively when considering locations and real estate options.

    Amazon said the new location could be, but does not have to be, an urban or downtown campus with a similar layout to Amazon’s Seattle campus and a fully entitled, development-prepped site.

    What the RFP tells us according to Brookings analysts is that the vibrant metros of the future will be those where digital technologies “collide” with cutting-edge business development and have the capacity to produce skilled, technical talent. The importance of talent pervades the Amazon RFP, with special mention of a “strong” university system, computer science programming in the K-12 education system, and opportunities for creative partnerships with community colleges and universities.

    “Amazon’s HQ2 will only be located in one city, but the path to prosperity in a hyper-digital global economy is attainable for cities that invest in people, infrastructure, and quality places,” said the studies to analysts: Amy Liu, vice president and director of the Metropolitan Policy Program at the Brookings Institution, and Mark Muro, a senior fellow and director of policy for the program.

    Cities looking to garner a bigger share of high-tech growth in the future should do so by looking closely at the criteria in Amazon’s RFP and ask whether they’ve done enough to create and support the assets prized by similar innovative firms and industries.

    “Amazon’s wish list is an unusually public confirmation from one of the most recognized corporations in the world of the factors that make a local ecosystem relevant in today’s innovation economy,” Liu and Muro said.
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